Members of the Electronic Components Supply Network (ecsn) continue their efforts to provide great customer support through the current COVID-19 pandemic, it’s essential for the survival of their organisations, continuation of employment opportunities and maintaining the contribution our industry makes to the national economy. In this article, ecsn Chairman Adam Fletcher reviews a reasonable outcome in Q1’20 for the UK electronic components market, which he believes is due more to our industry’s pragmatic approach to problem solving rather than to guidance from the ‘powers that be’

Government support

Any organisation in the electronics industry that has been waiting for the UK government to issue positive absolute guidance to them during the current COVID-19 emergency will not feel that they have received much help. Let’s be charitable and suggest that this may have been intentional. By only setting a few very high-level guidance rules the UK government may have wanted individuals and organisations to decide for themselves how best to proceed through the lockdown period.

Organisational change Business leaders in the ecsn community continued to encourage long-term interpersonal relationships throughout their organisations and its supply network. Why? Because timely engagement to discuss serious problems is known to engender the effective responses that lead to successful outcomes. Where possible they have enabled their employees to work from home and continue to provide seamless support for their colleagues, customers and families. Great care has been taken to guard the welfare of on-site employees: Their working environment is carefully controlled and monitored to ensure full compliance with the evolving COVID-safe legislation, including minimising inter-action by shift working, one-way systems, screening, increased hygiene measures, social distancing etc.

10 May 2020

ecsn members report that the majority of their customers are still operating, albeit now at a slightly reduced capacity and most are currently requesting on-time delivery of their scheduled orders to increase their in-house inventory in line with increasing manufacturer lead-times as well as to increase their safety stockholding in an uncertain environment. Most customers have extremely poor visibility of their short-term demand but need in-house and pipelined inventory to be positioned to react quickly to their customers’ needs and rightly expect their own supply network to be both responsive and resilient.

UK market decline

The statistical data for Q1’20 is included in the graphic “DTAM By Quarter for 2014 – 2020”. Whilst not good news the industry will probably not view the Q1’20 UK DTAM (Distributor Total Available Market) result as a disaster. In the current economic environment it could even rate it a pretty good performance compared to many other UK market sectors. The graph shows that the UK DTAM declined by (10%) in Q1’20 compared to the same quarter in 2019, a steeper and faster decline than ecsn members forecast in December last year. The blue bars are the actual results achieved; the orange bars indicate the forecast and the brown portion highlight the range. The bars shaded orange and brown represent the range of ecsn’s guidance for the second half of 2020.

Electronic components inventory After the March hiatus shipments from components manufacturers to their authorised distributors are currently proceeding satisfactorily.

ecsn members are confident that they currently hold sufficient inventory to meet their customers demand but component manufacturers are warning of disruption throughout the rest of 2020 primarily due to the problem of aligning their production output with almost non-existent demand visibility from customers. The electronic components supply network is therefore having to rely on extrapolating historic usage data in order to forecast future demand. Getting this right across millions of individual component types will be a challenge over the next few months and there will inevitably be some errors. The quoted manufacturer lead-times for most electronic components are continuing to extend and currently customers are having to wait between 8-to-12 weeks for delivery. There are however a small number of ‘highly multi-sourced merchant market commodity products’, such as legacy MLCC and some passive components, that fall outside of these norms and are already on extended lead-times of 20+ weeks. It may seem counterintuitive but the supply of ‘proprietary’ (single or near single sourced components) will always be more reliable than multi-sourced ‘merchant market commodity products’ because the manufacturer is obligated by its customers to maintain a constant supply, both to generate revenue and feed new design opportunities. Customers are being kept up to date with the latest availability information by their supply network partners, who are updating their websites daily and are prominently posting their organisation’s response to any delivery issues as they arise.

Personal forecast

Following discussion with a wide range of industry leaders it’s my personal opinion that customer demand is likely to decline further in Q2’20, will remain weak in 2H’20 (please see the

brown arrows shown on the graphic “DTAM By Quarter for 2014 – 2020”) and will only begin to recover in 2021. Average manufacturer lead- times will remain extended until the underlying demand and supply situation stabilises, and customer forecasting improves, which I don’t see happening until next year. Availability could be further compromised by customers’ ERP systems reacting to extending manufacturer lead-times by automatically increasing order cover, and just as quickly scaling it back down.

Next steps

Having recovered the immediate situation ecsn members are now beginning to focus on the prospects for their businesses near-term. The Government’s furloughing support for business organisations has been generally well received and has enabled many sectors of the UK economy to retain their employees during the emergency but the much trumpeted loan facilities appear to have currently had very limited impact. Fortunately, ecsn members have managed to trade throughout this period without having to call on this state aid. The Government’s announcement of a loosening of its lockdown guidance – from “stay at home” to “be alert” - is merely creating more confusion for organisations so I anticipate ecsn members and their customers will continue to collaborate to find an acceptable way forward that meets the needs of all parties. The current challenges will gradually recede into history but in the meantime what we all choose to do together and how we conduct ourselves over the next couple of quarters will have a significant effect on the final outcome for our national economy, our people and the organisations that employ them. Wide engagement and collaboration up and down the supply network costs little and will help all prosper. I encourage your organisation to play its part in honest, positive collaboration both up and down its supply network.

Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to share best industry practice. ecsn-uk.org